Assume that American rice sells for $100 per bushel Japanese rice sells for 1600 yen per bushel and the nominal exhange rate is 80 yen per dollar
a. Explian how you could make a profit from this situation what would be your profit per bushel of rice ? If other people exploit the same opportunity, what would happen to the price of rice in Japan and the price of rice in the US?
b. Suppose that the rice is the only commodity in the world. What would happen to the real exchange rate between the US and Japan?